BTS Group Holdings

BTS Group Holdings Plc (BTS) 

Investment thesis

The key messages at the analyst meeting reaffirmed our view of BTS’s short-term and long-term growth prospects. Expectations of strong bottom-line growth in 4Q14 and anticipation of new state infrastructure projects will boost the share price in the months ahead, we believe. BTS currently trades at an end-March 2016 PBV of 2.4x, 0.1SD above its long-term mean of 2.2x, which we believe is justified, as there is scope for upside to its long-term earnings profile from management contracts for new mass transit lines.    

Jan-March core earnings to soften both YoY and QoQ  

4Q14 (Jan-March) core profit will soften YoY and QoQ, due to lower income at the residential property unit (YoY), higher SG&A expenses (YoY) and weaker earnings at VGI (QoQ). Only 20 condo units (at most) at Abstracts Phahonyothin Park are expected to transfer in 4Q14, against 53 units in 4Q13. As of Dec 31, 2014 presales at Abstracts Phahonyothin Park rose to 91% from 90% as of Sept 30, 2014. 

The contribution from VGI will decline QoQ, due to ad-spend low season and persisting weak ad spending among fast-moving consumer goods brands. On the other hand, the 4Q14 bottom-line is expected to grow both YoY and QoQ, as BTS should book a gain from selling assets to NPARK.

Progress on mass transit extension line contract tenders    

BTS expects to be awarded the E&M contract for the Dark Green Line south (Bearing-Samut Prakarn) extension by late 2015. It also assumes that it will win the E&M contract for the Dark Green Line north (Morchit-Saphan Mai-Ku Khot) by early 2016. The Light Green Line should open for tender (both civil and E&M works) in early 2017. The firm is also interested in bidding for other transit projects that will connect to the BTS—the Light Rail Transit (Bang Na-Suvarnabhumi) (the tender is expected in 2015), the Grey Line (Watcharaphol-Rama IX Bridge) (bidding expected early 2016) and the Pink Line extension (Khae Rai-Pakkred-Min Buri) (the tender will open later this year).

Scope for upside to long-term earnings profile     

Apart from the property projects in which BTS is jointly investing, there is scope for upside from expansion of Chefman restaurant and the AEON Rabbit Member Card project. Management plans to open 13 Chefman outlets during 2015-16. We preliminarily estimate that the firm’s long-term earnings could increase 5% from our current forecast and our  DCF-derived target price would rise by Bt0.30/share. Also, BTS expects to earn interest on debentures, dividend income and loyalty fees from card issuance (a total blended yield of 8% from AEON Rabbit cards). Based on the guidance, we roughly estimate is that its long-term profit could rise by a further 4% from our current forecast.